Supply Chain M&A Chapter 1 – The Business case and AAA model

In the first chapter of Supply chain M&A we will overview together the reasoning behind the initative for organizaions M&A, we will discuss the options we might face and the related roadmap the managment decision making turns to.

Reasons for supply chain mergers are vary between optimizing current multiple suorces and reducing manufacture centers due to enterprize as well as mid companies aquisitions activities. it make sense to consolidate two or more manufacture sites, or suppliers/sub-contrcators while the firm is going through process of aquisition of other firm, it makes the activity beneficial if those sources, or manufacture sites are located in the same geographical area, or performing the same technological activity.

Benefits from consolidating supply chain should results with the following benefits to the organizaion:

In the short terms (up to 12 months):

1. Reduce logistics/manufacture/assembly headcount/labor force
2. Reduce total inventory, no need to keep same parts on different stocking
3. Reduce transportation and logistics cost, no need to ship goods from multiple locations, opportunity to consolidate outbound.

In the long terms (from 12 months to 36 months):

1. Reduce numbers of sources, supplier management become more efficient
2. Reduce transportation and logistics cost, incoing raw material and goods are consilidated, reduce inbound activity.
3. Reduce warehouse area and realestate costs, less manufaturing sites, less stocking.

It is important to clarify, during the transition process, the funds invested with the M&A team, training for new trainees for knowledge transfer, processes/activities, may results with increase of expenses and reduce in cashflow. however those activities are critical to perform smooth and solid knowledge transfer from the “giving” team to the “recivers” team. such expenses may results with extensive travel to manufature/suppliers sites, increase with manufacture headcount , project manangers and relarted personal.

Firms can decide to go to M&A due to regalotary issues, taxes, market change, political and demographic reasons.

However the main reasons for supply chain M&A in the 21 century are:

1. Internal Client Needs
2. Global Competition
3. Financial Results

In addition, firms which are aiming for global growth/expansion, are likely to focus on becoming world class organization suppoerted with global supply chain and/or global manufaturing.

In the AAA model below, we can define 3 elements which drive firms for supply chain M&A:

1. Aggregation – attemps to deliver economies of scale by creating regional or somtimes global operations, it is involves standardizing the product or services offering and grouping together the developement and production processes.
2. Adaptation – seeks to boost revenues and market share by maximizing a firm’s local relevance.
3. Arbitrage – is the exploitation of differences between national or regional markets, ofter by locating seperate parts of the supply chain in different places.